While it’s great to have elite status on several airlines and many hotel chains, it sometimes boggles me how airlines and hotels design their mid-tier and top-tier elite structures.

Elite Status is kind of nice, but it can be hard to use the benefits

I recently commented on Scotts’s article that I couldn’t use over 20 suite night awards I had racked up even when I tried (again in Hanoi too), either because the hotel would deposit them back into my account, preferring to use the unlimited complimentary upgrade policy, the hotel actually be sold out of suites or because I booked too close to the day of check in. Many UA flyers lament having to use Systemwide upgrades on W fares or higher, for the privilege of upgrading into 8-across Business Elite seats on 777’s, so they let them go to waste.

If you’ve ever flown Swiss or Singapore, you’ll know that this is WAAY too many seats to cram into a business class cabin.

In many ways, benefits at the top ranks of status may be overallocated. Some of this is probably intentional on the airline and hotels’ part — let breakage wipe liability off the books while leaving your top tiers feeling they are getting something for their loyalty.

What if hotels gave mid-tier elites a taste of the good life?

But what if some of those benefits were used to give mid-tier elites a taste of the good life. Would they value say 2 suite nights, 1 Hyatt upgrade voucher or 2 Systemwide upgrades? More than someone who has gotten used to it and gets pissed off when they “miss” “their” upgrade? What about 2 lounge passes for hitting silver? Giving mid-tier elites, many of whom are youngish professional business travelers — possibly with families, aspirational benefits might do well to lock them in to more leisure spending. Even though their company is paying for work travel, they have decent free cash flow and want to see the world on limited vacation time. Airlines (at least the smart ones) know that business travel is decreasing as an overall share of revenue, even while total revenue and passenger loads go up. Hence premium economy and “deluxe” rooms.

Customer Lifetime Value should factor more significantly into benefit allocation

Airlines and hotels have traditionally thought of loyalty programs as a reward for loyalty, a sort of “you scratch my back, we’ll scratch yours” approach. But they are becoming considerably more effective marketing tools and some are starting to catch on. The best leaders in the loyalty sphere of influence know it’s about WOW moments that go above and beyond a potential high value customer’s expectations. As traditional demographics age, the programs are going to look more and more at “customer lifetime value.” If a 25 year old is spending $5k a year of their own money on United Airlines, imagine what they’ll spend at age 40 or 60? Especially if they are having a good time. Compare to a 55 year old spending $7,000 a year.

It’s already September, and I’ve tried using these awards on almost every reservation this year.

Savvy marketing departments do this already. If someone hasn’t stayed with you for a while and makes a booking, target some offers at them. IHG did this beautifully with their Into the Nights promo, giving more lucrative offers to people that only casually book with their hotels. Their top tiers were not as lucky, with reports of requirements of 40 additional nights to reach the free night bonus. It’s not the people who are consistently spending money with you, or the ones that spend no money that you should market to, it’s the ones that are likely to spend incrementally more. Hotel desks should make note of someone who looks like a road warrior that breezes up to a check in desk for the first time in ages (but knows the drill) and send that name straight to the retention and loyalty folks. Perhaps send a bottle of wine up.

IHG’s Into the Nights Promotion is squarely targeted at people who casually interact with the brand in an effort to get them more engaged and spending more.

It’s a game of Setting Expectations vs. Reality

So when it comes to the instruments of status, freebies and gestures of goodwill for loyalty, it might be interesting to see how airlines and hotels can restructure them to surpass expectations. Great examples are unlimited complimentary upgrades on Delta, United and US Airways. Your low-level silver or gold consulting analyst traveling Monday mornings and Thursday afternoons has a snowball’s chance in hell of ever snagging a seat up front, but there it is as a benefit on page 5 of the elite kit you sent them, because it SOUNDS great. “Oooh upgrades that are UNLIMITED, maybe I’ll get to sit up front. Nope, 87th on the upgrade list, missed it again.” They get an upgrade once a year on their 5 day vacation to Cancun or Vegas or some other leisure market within 3 hours. Woohoo…

This is a classic example. UA now has 7 happy customers that are sitting up front (and probably almost always do) and 57 customers that missed “yet another” upgrade. Way to set expectations! (HT Matt Klint at UPGRD.com)

Rather than being super transparent with complicated upgrade rules, I’m surprised airlines don’t follow a hybrid approach between AA’s (only top tiers get upgrades) and DL/UA/US (every elite in theory is eligible for upgrades). Instead, remove/stop publishing the unlimited benefit for lower tier elites, but process the list exactly as it is done today. Now your silver or gold, on the off chance that there actually is a seat up front, is delighted that they got upgraded, because they were never expecting it in the first place. “Gosh I love United/Delta etc. They totally went above and beyond” Same goes for int’l business class seats and suites. This inventory is expiring fast and most people paying for business class are doing it on the company dime. No one authorized to buy a suite or a J ticket is going to wait til last minute on the off chance that they’ll save their company a few bucks. But a yuppie that gets to try a bed in the sky for the first time? They may seriously consider that upsell for $400 next time.

Is exclusivity dying? Are we entering a world of “pay to play”?

But what about protecting the product, asked a friend who was a former Cathay Pacific flight attendant!? Well, that only makes sense if people know what they’re missing, and the reviews on skytrax and the flatseats.com shouldn’t inspire much confidence that your average premium passenger is a connoisseur of air travel like our lot. A vast majority of people in international business class wouldn’t be able to tell the difference between Aerolineas Argentinas and Cathay Pacific. Most business travelers are so route specific, they only have a choice of two, maybe three carriers. Letting those seats go unfilled is a missed opportunity for aspirational marketing, particularly at low and mid-tier elites. Hell, even randomize it so people like us can’t game the system. Similarly, with more airlines and hotels (and many other industries) offering the ability to buy a la carte upgrades (e.g. line passes, priority security, expedited boarding) for many aspects of an experience, how to elite benefits translate across properties and flights with massively different types of volume and spending.

Wow, I don’t think this person is going to be pleased with any business class seat. But for a first time J flyer, they’ll probably be blown away. Where do you spend your marketing dollars?

Similarly, I don’t know why hotels don’t fill their presidential suites every night. Yes, there is a slightly higher cost to turn over the room (extra set of towels and toiletries and 5-10 minutes of housekeeping time likely) and the fixtures may need to be replaced more often, but now that couple might book it at the rack rate for their honeymoon or I’ll book your property over a competitor’s now that I’m motivated to hit top tier for UNLIMITED upgrades with your chain.

Sadly airlines and hotels obfuscate some of the best they have to offer, on the pretense of exclusivity. Instead, they should take a look and see whether reallocating a few perks could have considerable marketing return, particularly on low and mid-tier elites and particularly those with high customer lifetime value. If done right over the long term, it may be a useful investment to boost long term operating margins.

How does lifetime status fit in?

Lastly, I’m curious how these shifts in using status as a tool for incremental spending and better targeted marketing will impact lifetime status. United is currently in a legal battle with its million milers, for changing benefits considered “lifetime” because they felt they could change the terms whenever. Note the change in thinking of using status as a thank you for loyalty towards using it to squeeze incremental revenue. I just hit 200 lifetime nights at Starwood. If I hit lifetime gold, will I now be incentived to book at other chains, when I’ll know that SPG gold is always available and I don’t have to “tend” to it as much? Similarly for lifetime platinums or star alliance gold members?

Starwood announced that a number of changes are coming to how they distribute benefits to platinum members, offering more choice and customizability. I consider them one of the industry leaders in this space, and will be curious to see what they come up with.

After all, someone has got to use those suite nights.